This is the final part of our series on CIPs (parts 1-3 can be found in the resource hub) It can be seen as a bolt-on to whatever in-house or outsourced decision is reached by the adviser firm.
The previous articles covered areas that could be truly "business transformational" in that it provides a clear route for the vast majority of client business. I use the term "business transformational" as I believe that such a selected model makes the business scalable, repeatable, and ultimately more saleable. There should no longer be key-person dependence, if set up correctly, so any subsequent sale would allow this part of the business to continue seamlessly.
As such, this last part of the series will focus on products and services which do not fit neatly onto a platform, so sit outside of the standard CIP range.
There is also a debate on whether a multi-manager, multi-asset fund needs to be placed onto a platform whereby the client ends up paying a platform fee when the fund can be bought off-platform.
This is particularly important for larger GIAs where OEICS/UTs are being used rather than model portfolios to eradicate/reduce potential CGT. All rebalances in a model portfolio will trigger CGT whereas within the collective it would not.
Buying these off-platform would become slightly messier to view/report on for both IFA and client but would save a platform fee. It would also necessitate the purchase of the collective by the IFA directly with the fund’s ACD, but all will have a simple application form for this. The drawbacks however are that this does always not sit snugly with standard IFA practise where an adviser has everything on a retail investment platform, so the client is not able to see all of their holdings in one neat place, nor will there be one easy platform delivered tax reconciliation statements.
Having funds held off-platform will necessitate separate reporting/tax calculations, so a saving in one place could lead to an additional expense elsewhere (especially for those larger GIAs where income and CGT could be impacted). It is worth emphasising that the adviser should consider the pro's & cons of on vs off platform from a client benefit perspective so the decision is driven by what is best for the client.
Away from just funds, there are many other product/services used by IFAs which are not available on platforms but still need to be part of the adviser’s armoury when giving whole of market advice.
These range from VCTs, EISs, SEIS, Social Investments (SITR) and AIM portfolios, and other IHT products (through the use of Business Relief). This could also include UCIS’s (Unregulated Collective Investment Schemes – although these appear to be less popular in recent years). Our industry has moved on in the last few years, with some AIM portfolios becoming available on certain investment platforms. Some AIM portfolio providers have their offering available on a single platform whereas others make these available on multiple platforms. Having a different platform for differing services is also not ideal. Other AIM portfolio providers only offer their portfolios off-platform.
There will be some apprehension at the sight of some of these "tax products" as most are automatically be deemed "very high risk" by the regulator and adviser’s compliance departments.
It is vital that the adviser fully understands these "tax products" products fully themselves as these will be recommended far less frequently so there is a greater risk that the adviser’s knowledge of them isn't as well maintained. The adviser should be able to demonstrate the knowledge of these products, explaining their features, benefits and risks to end-clients in a way that they can readily understand before making the recommendation to the clients. With these products the FCA is far more likely to question the advisers’ knowledge for these rather than more standard offerings.
It can be argued however that many higher-rate tax payers should at least consider having some of their capital in such products, as long as the overall risk rating of their portfolio remains in line with their risk profile due to the potential reduction in their income tax liability that may be achieved. Such clients may want to consider having separate risk profiles attached to several separate capital "buckets" that have or could be earmarked for different needs/targets and time periods.
When considering these alternative tax products, consideration should also be given to use of reputable third party research to provide quality independent due diligence. In addition to the due diligence, their research and compliance tools for advisers considering EIS, VCT, SEIS, BR & SITR investments, will help demonstrate that the adviser has considered the whole of the market before making the final selection on merit.
These products are at the highest risk ratings so invariably come with a far greater risk of Company failures and it is important that clients fully understand and accept this risk and have the appropriate attitude to investment loss to absorb such losses. However, diversification can greatly reduce this risk to the end-client. If one stock, in a portfolio of 50 stocks, does go bust it is only 2% of the total, whereas one in 10 (a less diversified portfolio) carries a greater risk.
We hope that this "bolt-on" to the standard IFA CIP has adequately completed the series but any comments/feedback is always greatly appreciated so we can look to include it in any future iterations.
